City manager explains Hendersonville budget

Published: Sunday, June 22, 2014 at 4:30 a.m.

Last Modified: Friday, June 20, 2014 at 10:21 p.m.

A 5-percent cut to all city departments? A temporary hiring freeze? The balancing act behind Hendersonville’s nearly $32 million budget may have sounded drastic, but the 5-percent cut concerned requests exceeding revenue, and the freeze puts non-essential positions on ice for two months.

In the light of flat revenues from a lingering recession, higher debt and deteriorating roads, City Manager John Connet said they had to cut, freeze and tighten purses to rein in next month’s tax hike at 3 cents. But budget forecasts since the Great Recession are on the mend.

Like last year, the city faces higher debt payments. Hendersonville’s debt from sidewalks and city hall renovations skyrocketed $453,791 this year when loan payments for the final Main Street rehabilitation, new fire station and fire truck came due.

Last year, Hendersonville City Council forestalled the 3-cent tax hike needed to cover the looming debt from those projects by dipping into the city’s healthy fund balance reserve. This year, the fund balance reserve is going to cover the cost of another project to keep the city’s only university from leaving.

The city has earmarked $1,122,300 of its nearly $6.1 million rainy day fund to cover capital expenses, including $700,000 pledged for the new Wingate-Blue Ridge Community College-Pardee Hospital health sciences building.

The withdrawal would drop the city’s fund balance below the 45 percent city leaders had originally agreed to keep on hand to cover emergencies or rare opportunities such as the Wingate project. But even with the dip, the city’s reserves remain well over the 8 percent fund balance required by the N.C. Local Government Commission, said Finance Director Lisa White.

The fund would also still hold more than the four months of reserves the Government Finance Officers Association recommends, she added.

City leaders shied away from siphoning more out of the fund pool to plug the budget gap in May after learning it would take years to recover a fund goal of 45 percent, if they relied on it over a tax increase.

“The idea is you don’t want to use your reserves for operational costs. You want to use it for one-time capital or for special projects or for emergencies,” Connet said. “You don’t want to have to use your savings every month to pay the power bill because if you’re doing that, then you’re going to deplete your savings. But if you need to put in a roof once in a decade, then you use it.”

The last tax hike in the city occurred in 2011 when the rate grew from 38 cents to 41 cents per $100 property valuation. This year’s increase from 41 cents to 44 cents practically mirrors the pre-recession rate of 43 cents that dropped to 38 cents when home values soared in the city in 2007.

Assessed property values in the city jumped from about $1.3 billion in fiscal year 2006-07 to $1.7 billion in 2007-08 due to a countywide reappraisal in 2007.

A reappraisal conducted every four years in the county to study the health of the market reflected a nearly $200 million drop in the city’s assessed values four years later. Revenues have stayed relatively flat since then, Connet said, and the city’s general fund balance has been on a downward trend since 2007, but “we’re starting to see positive signs in the economy.”

The ad valorem real estate tax base in the city is anticipated to be $22 million higher next fiscal year, according to the city’s budget. The new tax rate is estimated to provide an extra $7.12 million in property tax revenues based on an expected collection rate of 97 percent.

This year’s increase will add $75 to the tax bill of a home valued at $250,000.

Two cents of the 3-cent tax increase will be used to cover extra debt payments. The remaining $160,000 estimated to be raised from taxes will be used for street resurfacing, Connet said.

A study by U.S. Infrastructure of Carolina Inc. last April revealed nearly 70 percent of the city’s roads were in need of improvement; 40 percent of which were found to be in poor or very poor condition. The total bill came to $3.88 million.

Consultants recommended the city resurface 4.5 miles of roads a year at an annual cost of about $692,000 to combat the rapid deterioration that occurs in unmaintained roads after about 18 years.

The city is planning to receive $383,280 in state gas-tax allocations from the Powell Bill to help with road repairs next fiscal year. The extra $160,000 from taxes will get the city closer to the $692,000 goal consultants recommended.

In addition to the flat revenues from property taxes, extra financing debt for special projects and money needed for street repairs, the city is bracing itself for another hit from missing privilege license taxes in 2015.

A new state law sunsets privilege license fees levied on businesses for the “privilege” of operating inside local municipalities in July 2015. The new law would cut $385,000 (the amount of money generated from a 2.5-cent tax hike) from the city’s revenue stream.

“We have been told by the legislature that they are going to work with local governments in the long session beginning in January to replace that revenue, and we’re cautiously optimistic that they will honor their word,” Connet said.

To narrow the budget, Connet this year asked all departments to cut 5 percent of requests that surpassed revenue “so we could balance the budget with only a 3-cent tax increase.” A two-month hiring freeze for all “non-essential positions” will also go into effect next fiscal year to give the city time to evaluate positions, making sure each one is needed and structured properly, he said.

“The long-term revenue picture for the city of Hendersonville is improving, but still somewhat uncertain,” Connet said in his budget foreclosure for next fiscal year. “We are seeing an increase in commercial growth and I expect this activity to continue for the foreseeable future as the Asheville Metropolitan Area continues to grow. In the past, we have expanded the city through a proactive annexation program. However, legislation has made annexation more difficult and will require us to formulate new ways to grow the city.

“We must put a greater emphasis on economic development activities that will allow us to fill our remaining vacant industrial and commercial structures over the next several years. In addition, we must move forward with infrastructure improvements that will increase our capacity to support existing and new industrial and commercial growth. The city of Hendersonville staff is continuing to work with the Henderson County Partnership for Economic Development and property owners to develop potential industrial and commercial sites to diversify our expanding tax base. Our desire is to take advantage of our location and workforce to generate growth opportunities.”

<p>A 5-percent cut to all city departments? A temporary hiring freeze? The balancing act behind Hendersonville's nearly $32 million budget may have sounded drastic, but the 5-percent cut concerned requests exceeding revenue, and the freeze puts non-essential positions on ice for two months.</p><p>In the light of flat revenues from a lingering recession, higher debt and deteriorating roads, City Manager John Connet said they had to cut, freeze and tighten purses to rein in next month's tax hike at 3 cents. But budget forecasts since the Great Recession are on the mend.</p><p>Like last year, the city faces higher debt payments. Hendersonville's debt from sidewalks and city hall renovations skyrocketed $453,791 this year when loan payments for the final Main Street rehabilitation, new fire station and fire truck came due.</p><p>Last year, Hendersonville City Council forestalled the 3-cent tax hike needed to cover the looming debt from those projects by dipping into the city's healthy fund balance reserve. This year, the fund balance reserve is going to cover the cost of another project to keep the city's only university from leaving.</p><p>The city has earmarked $1,122,300 of its nearly $6.1 million rainy day fund to cover capital expenses, including $700,000 pledged for the new Wingate-Blue Ridge Community College-Pardee Hospital health sciences building.</p><p>The withdrawal would drop the city's fund balance below the 45 percent city leaders had originally agreed to keep on hand to cover emergencies or rare opportunities such as the Wingate project. But even with the dip, the city's reserves remain well over the 8 percent fund balance required by the N.C. Local Government Commission, said Finance Director Lisa White.</p><p>The fund would also still hold more than the four months of reserves the Government Finance Officers Association recommends, she added.</p><p>City leaders shied away from siphoning more out of the fund pool to plug the budget gap in May after learning it would take years to recover a fund goal of 45 percent, if they relied on it over a tax increase.</p><p>“The idea is you don't want to use your reserves for operational costs. You want to use it for one-time capital or for special projects or for emergencies,” Connet said. “You don't want to have to use your savings every month to pay the power bill because if you're doing that, then you're going to deplete your savings. But if you need to put in a roof once in a decade, then you use it.”</p><p>The last tax hike in the city occurred in 2011 when the rate grew from 38 cents to 41 cents per $100 property valuation. This year's increase from 41 cents to 44 cents practically mirrors the pre-recession rate of 43 cents that dropped to 38 cents when home values soared in the city in 2007.</p><p>Assessed property values in the city jumped from about $1.3 billion in fiscal year 2006-07 to $1.7 billion in 2007-08 due to a countywide reappraisal in 2007.</p><p>A reappraisal conducted every four years in the county to study the health of the market reflected a nearly $200 million drop in the city's assessed values four years later. Revenues have stayed relatively flat since then, Connet said, and the city's general fund balance has been on a downward trend since 2007, but “we're starting to see positive signs in the economy.”</p><p>The ad valorem real estate tax base in the city is anticipated to be $22 million higher next fiscal year, according to the city's budget. The new tax rate is estimated to provide an extra $7.12 million in property tax revenues based on an expected collection rate of 97 percent.</p><p>This year's increase will add $75 to the tax bill of a home valued at $250,000.</p><p>Two cents of the 3-cent tax increase will be used to cover extra debt payments. The remaining $160,000 estimated to be raised from taxes will be used for street resurfacing, Connet said.</p><p>A study by U.S. Infrastructure of Carolina Inc. last April revealed nearly 70 percent of the city's roads were in need of improvement; 40 percent of which were found to be in poor or very poor condition. The total bill came to $3.88 million.</p><p>Consultants recommended the city resurface 4.5 miles of roads a year at an annual cost of about $692,000 to combat the rapid deterioration that occurs in unmaintained roads after about 18 years.</p><p>The city is planning to receive $383,280 in state gas-tax allocations from the Powell Bill to help with road repairs next fiscal year. The extra $160,000 from taxes will get the city closer to the $692,000 goal consultants recommended.</p><p>In addition to the flat revenues from property taxes, extra financing debt for special projects and money needed for street repairs, the city is bracing itself for another hit from missing privilege license taxes in 2015.</p><p>A new state law sunsets privilege license fees levied on businesses for the “privilege” of operating inside local municipalities in July 2015. The new law would cut $385,000 (the amount of money generated from a 2.5-cent tax hike) from the city's revenue stream.</p><p>“We have been told by the legislature that they are going to work with local governments in the long session beginning in January to replace that revenue, and we're cautiously optimistic that they will honor their word,” Connet said.</p><p>To narrow the budget, Connet this year asked all departments to cut 5 percent of requests that surpassed revenue “so we could balance the budget with only a 3-cent tax increase.” A two-month hiring freeze for all “non-essential positions” will also go into effect next fiscal year to give the city time to evaluate positions, making sure each one is needed and structured properly, he said.</p><p>“The long-term revenue picture for the city of Hendersonville is improving, but still somewhat uncertain,” Connet said in his budget foreclosure for next fiscal year. “We are seeing an increase in commercial growth and I expect this activity to continue for the foreseeable future as the Asheville Metropolitan Area continues to grow. In the past, we have expanded the city through a proactive annexation program. However, legislation has made annexation more difficult and will require us to formulate new ways to grow the city.</p><p>“We must put a greater emphasis on economic development activities that will allow us to fill our remaining vacant industrial and commercial structures over the next several years. In addition, we must move forward with infrastructure improvements that will increase our capacity to support existing and new industrial and commercial growth. The city of Hendersonville staff is continuing to work with the Henderson County Partnership for Economic Development and property owners to develop potential industrial and commercial sites to diversify our expanding tax base. Our desire is to take advantage of our location and workforce to generate growth opportunities.”</p><p>Reach Weaver at Emily.weaver@blueridgenow.com or 828-694-7867.</p>